An effective personal finance management plan is a series of steps that help meet one’s life goals. A personal financial plan serves as a guide throughout your life. In essence, it provides you with the tools to manage your finances and achieve your goals by keeping track of your income, expenditures, and investments.
Having a solid plan makes things easier for you, and when it comes to money, the plan has to be concrete. This is why we have discussed the principles of personal financing in this article.
What is personal finance?
Personal finance is not only an emergent part of managing your daily financial needs but also managing personal finance for the future. The faster you clutch on your personal finance the finer your long-term financial apprehensions will be for objects like financial investment and retirement planning.
Personal financial planning is the process, which gives you a framework for acquiring your financial goals in an organized and structured way by ignoring sudden shocks and accidents. In the case of Personal finance, you may ask some questions like What are the 5 areas of personal finance? The 5 areas of personal finance are mainly saving, investing, growing money, tax planning, and planning for retirement.
Why is personal finance important? | Why do we need multiple sources of income?
Nowadays, goods and services around us appear to be getting expensive day by day. It could be education, automobiles, real estate, or even simple household items. On the other hand, our paychecks do not grow at the same pace as the prices. Therefore, to live a well-sheltered life, we all need multiple sources of income. We can now earn extra money from the comfort of our homes without any hesitation between two jobs with the help of the internet and technology.
We have prepared a list of different ways that can help you to earn extra wealth. These are:
- Freelancing: Freelancing is one of the most favored ways to earn extra income from home. If you have skills like designing websites, writing articles, digital marketing, graphic designing, Editing videos, and more you can work as a freelancer.
- Disadvantages: 24-hour coverage, lack of job security, variable income, and isolation from coworkers, which can be a dealbreaker.
- Start a YouTube Channel: YouTube is one of the most popular platforms in the current world. If you are ardent about educating or entertaining others, you can start a YouTube channel and can build a huge number of audiences with your good skill in presenting your content.
- Starting a proper Youtube channel takes a fair amount of time.
- It is a very competitive job, and a large number of Youtube channels fail because of this.
- Youtube has strict guidelines, violating them may cause your channel to get a penalty.
- There are some major privacy concerns involved with this career.
- Blogging: Blogging is one of the best ways to make money from home in india. If you’re passionate about writing and creating your own content, you can start blogging. Although it takes time, patience, and effort to make audiences. Once you get it you start singing.
- Requires a huge amount of upfront investment.
- If something goes wrong, blogging can actually hurt your business.
- Uploading regular content is a very difficult task.
- Online Consultant: An online Consultant is an expert in particularised things like marketing, business, engineering, healthcare, beauty care, and many more. You can earn extra income by providing suggestions.
- There is no job security with this particular job.
- The long working hours can be frustrating.
- You will miss several corporate benefits like health and disability insurance coverage, paid vacations, and retirement plans.
- Start Selling on E-commerce Websites: You can also earn extra money Selling your products Online. It became much easier than ever with the help of some popular E-commerce Websites like Amazon, eBay, etc.
- There is always a risk of getting hacked.
- You will surely face very high competition from the sellers.
- Delay in payment can be very frustrating.
- Start a digital marketing agency: By creating a Digital marketing agency you can earn money from home by helping some startups and businesses to increase their online visibility and growth.
- It requires a huge upfront investment.
- It is fairly difficult to build trust with your clients.
- It takes a significant amount of time to show any profit.
- Do Online Surveys: You can also earn money from home doing Surveys on behalf of some companies.
- You may face difficulty in connecting to your clients of remorse areas with no/bad internet connections.
- Clients often skip questions or answer mindlessly just to finish the survey, which can lead to a skewed result.
- Remote Customer Support agent: If you have good communication skills you will have various job opportunities in the field of Customer Support systems.
- The support agents may not be familiar with every single product available out there. And it can cause customer dissatisfaction.
- Keeping your client’s privacy intact can be a bit challenging.
- Create and Sell Your own Creativity online to earn extra wealth: Nowadays it became a very important earning platform.
- Starting a successful business takes a lot of time and patience.
- The profit margins are generally lower.
- You may face several difficulties if you are running your business single-handedly.
- Rent Out Some of Your Household Items: like music instruments, DSLR cameras, furniture, vehicles, etc. to earn extra income.
How to manage personal finances and save money?
Managing Your money is not rocket science and you need not be from a wealthy background. Your Personal financial planning is on you, you only need to have a bit of commitment to growing your money.
- How to save money effectively: Saving your money is the first step towards money management. Money-saving is an example of well personal finance management. Saving money can be a powerful step towards larger financial independence. In case of an urgent matter, you might have to swipe your credit card or borrow money from your friends. And you know credit card debt is a costly form of debt. Before realizing it, you repeat this a few more times and end up in a debt trap. Saving money will help you to avoid dropping into debt traps.
Not only this but day to day financial management can make you rich. You may reach your financial goals in a timely manner. Now you might be wondering how to save And how much to save? Even how to manage your money? As soon as you receive your salary, start dividing it under various heads to maintain financial planning process.
These heads can be income expenses, personal investments, and savings. Make sure that you save a minimum of 10-15% of your income every month. You may invest this amount in liquid funds. A liquid fund is a type of debt mutual fund which invests money in fixed-income generating funds with around 4% of interest. Invest your money every month over a long- term goals and see the magic it does for you!
- How to plan monthly expenses intelligently: When you are first starting out you need to create a budget for personal finance simply on a spreadsheet financial planner. A budget gives you the picture of how you are spending money wisely in personal finance,
If you are finding yourself struggling for money even before the month ends, then you are living in a bad manner of personal finance management. Maybe, there are a lot of unorganized expenses! These might be leaving you with no money for necessities.
Lest you have a budget, you won’t be able to control your cash flow. Types of personal expenses are categorized into fixed and unfixed; important and avoidable; urgent and trivial; luxury and necessary. In this way, you will have a full inventory of your expenses in front of you. After looking into all necessary expenses, you can spend some money on entertainment and fun.
Make sure you consider it as a commitment instead of a burden and stick to the bounding lines.
Similar to a personal budget, it’s important to calculate your net worth, no matter how awful it might be. You will be able to understand how to manage monthly expenses. It will keep you on track and help you conceptualize How your personal financial planning is going on.
- How to create a financial emergency plan: An emergency fund is an essential entirety of money that you need to keep aside to maintain the uncalled financial needs that life flings at you. It works as a protecting net for you in case of an unplanned, uncalled situation. However, this should be a fund to be used only in case of an emergency crisis, not for unnecessary expenditure.
If you are suffering to manage your finance and expenditure or find yourself not being able to cover unexpected expenses, then you may have the solution from an emergency fund.
Building your emergency fund saves you from the event of an uninvited financial storm and can help you prevent intolerable debt. It also serves you peace of mind even if you lose your job, are unable to work because of illness, or have to recover from a major car or home injury.
How to improve personal finance?
Investment is an essential part of growing your money and building a corpus for addressing personal finance long term goals and short term goals. You can invest wealth in fixed return investment and market-linked investments. In this kind of investment, the returns are fixed and they depend on the market’s performance.
Examples of fixed deposits are Bank fixed deposits, recurring deposits, company deposits, etc. On the other hand, stocks and mutual funds fall in the category of market-linked products.
Here we discussed various types of investments below:
- Stocks: Stock is a financial investing in which you buy ownership shares in a company—also known as equity shares. The relationship between what investment you put in and what you get back in return depends on the profits or losses of that company.
Some publicly owned companies, in case of high profit, can choose to distribute some of those earnings to shareholders by paying a dividend.Either you can have the dividends in cash or reinvest them to purchase more shares in that company. Stocks that return a higher than average dividend are referred to as Income Stocks from time to time. Stocks are bought and sold constantly throughout each trading day, and their prices rotate all the time.
When a stock price hikes higher than the price you purchased it, you can sell out that stock at a profit. These profits are called capital gains. In contrast, when stock prices are lower than you purchased it, you’ve incurred a personal capital loss.
- Mutual funds: Mutual funds are the types of investment options, through which an investor can invest money in equity, debt or hybrid instruments. There are different funds that are created by asset management companies for various risks.
- ETFs: Exchange traded gold funds(ETFs) integrate aspects of mutual funds and conversational stocks. Like a mutual fund an etf is an investment fund that offers you an interest in a professionally maintained, variegated portfolio of investment. But unlike mutual funds, it allocates trade-like stocks on stock exchange and you can buy or sell it by each trading day at a deferring price.
- Bonds: A bond is a kind of loan that an investor makes to a government, corporation, company or other organization in exchange for interest repayments over a particularised time and term at the maturity date of its. There are various types of bonds including municipal bonds , agency bonds corporate bonds, and more.
In the case of investing in bond mutual funds you may face many risks of losing your money, especially if you have purchased a bond and want to sell it without its growth. The bond mutual funds prices can be up and down as a stock mutual fund does. Risk will also vary depending on the type of bond you own.
- Bank products: Banks and credit unions serve you a convenient and safe way to compile savings—and some banks offer services, which help you manage your money. Transaction (or checking) bank accounts and other deposit accounts offer you extreme liquidity to make it easy for you to withdraw your funds whenever you want. For any reason including daily expenses to unexpected emergencies.
- Annuities and Saving for Retirement: In the beginning, you may ask what is an annuity. An annuity is a contract between an insurance company and an investor, in which the company promises periodic payments, starting immediately or at a future time. Now you may ask what is annuity insurance. annuity insurance is usually bought, either with a single payment or a series of annuity insurance payments known as premiums.
Some annuity contracts furnish an important source of saving for retirement. Deferred annuity and immediate annuity plan are types of annuity. To define deferred annuity, If you use an annuity as a saving management vehicle and the insurance company delays your future pay-out. An immediate annuity is when you use the annuity as a source of income after retirement and your payments start right away.
The two most common annuities are fixed annuity and variable annuity. There is also a hybrid annuity model known as an indexed annuity, also referred to as equity-indexed annuity or fixed indexed annuity. Annuities are often products investors consider when they prepare for their retirement planning.—so it pays to understand them.
- Cryptocurrency initial coin offering: cryptocurrencies are digital assets that make progress and flicker interest from main investors. In ICO financings, billions of dollars are raised and over a thousand different types of cryptocurrencies are available currently. These rapidly changing cryptocurrency prices are very attractive to every investor. It is also difficult for most individual investors to make sense of these complex yet smart investment products and to determine the risk levels associated with them.
How to control extravagant spending habits?
There might be many reasons behind controlling your spending. Maybe you are saving for achieving financial goals for having a house, car, education, or a fund after retirement. you have little income and higher debt, Or you are building an emergency fund. Lastly, when you realize that you are spending too much money.
Here are some tips you may have some benefits following these:
- Know your spending and manage expenses.
- Prepare your budget and go accordingly.
- Stop purchasing unnecessary goods, clothes, and ornaments just because you are passionate about having those.
- Stop spending money at restaurants, hotels, and bars.
- Stop going on a trip that’s unaffordable for you.
- Avoid purchasing expensive gadgets.
- Swear off debt.
- Delay your gratification of having a car, house, or lavish wishes, etc.
- Challenge yourself to reach your new goals.
Why tax planning is important? | How to start tax planning?
The Relationship between tax planning and financial planning in personal finance is very relevant in nature. It is necessary for you to inspect your finances from a tax efficiency point of view. Your today’s valuable pennies will make efficient finances in the future. You are free to claim various tax exemptions, deductions, and benefits to reduce your tax liability at the end of the financial year.
First of all, you need to understand the concept and process of personal tax planning. Tax planning is very much licit in nature, but you need to ensure that you don’t evade tax. There are a number of deductions available in the income tax act under section 80C to 80U. Investing in equity linked savings scheme (ELSS) is the most organized tax saver plan to benefit from Section 80C.
The ELSS has a shorter lock-in period than all the other tax saving investment plans available under Section 80C. Under this section, you can save taxes up to Rs.45,000 and avail a deduction of up to Rs.1.5 lakh. Even ELSS is a variegated equity fund that helps you in assessing your financial goals by investing in the stock market.
What is lifestyle inflation? | How lifestyle inflation is important in current scenario?
Lifestyle inflation is about the rising in spending when the income of a person increases. It increases when an individual gets a raise and it becomes hard to get out of debt, save for retirement or achieve other financial goals. It leads to people getting trapped in a cycle of living paycheck-to-paycheck. At the end of the month, they are just left with only sufficient money to pay their bills and necessary expenses.
People tend to expense more when their income arises. They think they’ll be happier with the extra purchasing of goods and services they can afford now. In fact, those purchases often do not make them satisfied. To reduce lifestyle inflation follow the tips given in the “How to control spending section”.
What is a lower interest rate loan? | Why should we choose to take cheaper loans?
Personal loans are the form of installment loans, which means you’ll pay interest on credit until the balance reaches $0. If you take out a personal loan, make sure you’re borrowing at the most affordable rate you can qualify for, or have the ability to repay. You must have a good credit score to get a loan faster. According to the Fed’s most recent data, the average Personal loan APR(annual percentage rate) is 9.34%.
The average APR of credit cards is 16.43% which is nearly double of personal loans. Sometimes, it might be smarter to take a personal loan than to rack up a big balance on your credit card. And while it sounds really nice to be debt-free, the reality is that most of us always use it to pay off some kind of debt.
The interest rate of affordable personal loans should not be more than 10%. You should feel ok about taking loan debt that’s below 10% APR, and even better if it’s below 5% APR. bajaj finance personal loan is an affordable personal loan with a 45% lower interest rate.To answer your question what is the interest rate of bajaj finance personal loan? Sometimes, the bajaj finance personal loan interest rate becomes cheapest if you purchase any electronics products or other goods.
The best credit card loan is personal loan bajaj finance. To know more about bajaj finance personal loan details visit their official website and do contact bajaj finance personal loan customer care number. muthoot finance personal loan, shriram finance personal loan, interest rates are more than 15%.
Why personal finance education is important? | How to learn about personal finance?
If you want to learn how to manage your personal finances, you need to read. Remember, if you have money you have everything.
No matter, whether you choose to read books, blogs, or other well-known personal finance magazines in india, personal finance course, etc. Just a few hours a week reading about finance can change your financial life. You’ll be surprised at how much you learn in a short amount of time.
You may have a question on should personal finance be taught in schools?. Your personal finance education is on you, no one is going to hold your hand to show you how to have success with your personal finance planning. Take action and change your financial health. It will be up to you to start spending time learning about finance and how it works.
You may take help from some online courses on personal finance likely, personal finance udemy courses, coursera personal finance courses, etc.
Pros and Cons of personal financial planning:
Your personal financial planning depends on your aspects of financial management. If you don’t know how to do personal finance planning and make them stronger then take advice from reliable sources. You may practice making an invest planning in mutual funds to get the benefit of diversification & professional financial management.
Disclaimer: I am not a certified financial adviser and this is not financial advice. The purpose of this article is to inform you about financial products and strategies. Consult your financial advisor before making any financial decisions.
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